Barack Obama makes 11th hour appeal to avoid fiscal cliff

Barack Obama has made an urgent final appeal to a bitterly divided Congress to
steer America away from the “fiscal cliff” as Democrats and Republicans
remained locked in tense eleventh-hour negotiations.

At midnight on December 31 the world’s largest economy will topple over the so-called “cliff” - $607 billion (£390 billion) in tax rises and government spending cuts that economists fear could trigger a new recession - unless politicians can agree to a deal.

As the Senate and the House of Representatives convened for emergency sessions, hopes of a deal in the upper house appeared to be fading as Harry Reid, the Democrat leader, said the parties remained “apart on some pretty big issues”.

His Republican counterpart, Mitch McConnell, said that he was speaking directly to vice president Joe Biden in an effort to “jump start” the stalled talks.

The Senate's session ended last night without a vote but Mr Reid said negotiations would continue throughout the night.

Earlier, Mr Obama made a rare appearance on Sunday television to call for immediate action.

“What congress needs to do, first and foremost, is to prevent taxes from going up for the vast majority of Americans,” he said on NBC’s Meet the Press.

Failure to strike a deal would “obviously have an adverse reaction on the markets”, he said. “I think business and investors are going to feel more negative about the economy.”

Though he claimed to be “optimistic” that Washington would act in time to stop the politically-created economic crisis, Mr Obama said “certain factions” on the Right of the Republican party were to blame for the gridlock.

The president said that Republicans’ “overriding, unifying theme” was preventing tax rises on the wealthy, even at the expense of a compromise that would help the middle class.

“The fact that [a deal] is not happening is an indication of how far certain factions inside the Republican Party have gone that they can’t even accept what used to be centrist, mainstream positions on these issues,” he said.

John Boehner, the Republican speaker of the house, retorted: “Americans elected President Obama to lead, not cast blame.”

If a compromise is agreed by Senate leaders, it would have to be voted on on Monday and approved by the end of the day by the House, where the vote could go either way.

The deepest divide between the two sides is over how many Americans should face higher tax rates when cuts originally introduced by George W Bush in 2003 expire at 11.59 tomorrow night.

Republicans insist that only households earning more than $1 million (£645 million) a year should see their rate go up. Democrats are instead seeking a threshold of somewhere between $250,000 and $400,000.

The last-minute meetings come more than a year after Democrats and Republicans agreed to design the “fiscal cliff” as a way of forcing both sides to compromise on a plan to reduce the $16.4 trillion debt.

As well as raising taxes on nearly nine in 10 Americans, the cliff would trigger unemployment benefits stopped for two million people and swingeing cuts to the military budget and domestic spending programmes.

Mr Obama said that if no agreement is reached, then the Democrat-controlled Senate would pass emergency legislation to protect unemployment benefits and prevent tax rises on families making less than $250,000 (£160,000) a year.

Passing the emergency bill would throw down a political gauntlet to the Republican leaders in the House: they could reject it and face blame for allowing taxes to rise or else accept it and risk a backlash from the Right.

"Republicans have to decide if they're going to block it, which would mean middle class taxes do go up," Mr Obama said. "I don't they would want to do that politically but they might end up doing it."

Mr Obama added that if “all else fails”, then the new Congress that meets from January 4 would have to act to undo the economic damage caused.

However, Mr Obama quoted Winston Churchill as he explained why he still believed that Congress would lurch to a last-moment deal: "Winston Churchill used to say that we Americans, we try every other option before we finally do the right thing."

As night fell and no breakthrough had been reached, senior figures began to express their pessimism.

Senator Lindsey Graham, a South Carolina Republican, tweeted. “I'm incredibly disappointed we cannot seem to find common ground. I think we're going over the cliff."

Senator Joe Lieberman, an independent from Connecticut, said the two main parties "are much farther apart than I hoped they'd be."

During the wide-ranging NBC interview, Mr Obama admitted that “sloppiness” at the state department was to blame for the lack of security at the US consulate in Benghazi that was overrun by Islamist militants in September. The attack killed Ambassador Christopher Stevens and three other Americans.

The president also defended Chuck Hagel, a former Republican senator being considered by the White House as the next secretary of defence.

Mr Hagel had come under fire for comments about the power of the “Jewish lobby” in US politics, and for appearing to question in 1998 whether gay people should serve as American ambassadors.